Vistara popularised premium air travel, and the airline’s rivals now embrace it

On Thursday, IndiGo launched a ‘Business Class’ product that offers wider seats with more leg room and curated meals for its metro routes

The aubergine-coloured airline, Vistara, flew under its own flight code ‘UK’ for the last time on Monday (November 12, 2024). It will henceforth fly under Air India’s ‘AI’ code, completing the merger of the two airlines ahead of the third anniversary of the erstwhile national carrier’s purchase by Tata Sons in January 2022. Although the airline that brought premium travel back to Indian skies failed to clock profit in the nine years of its existence, it proved to be a test bed for a travel experience that is fast catching on in the post-pandemic world, forcing some operators, including IndiGo, to tweak their business models.

The full-service Vistara made premium travel accessible by becoming the first Indian carrier to introduce the ‘Premium Economy Class’, a sweet spot between the ‘Economy Class’ and ‘Business Class’ — or cost and luxury — in a market that’s dominated by low-cost carriers. It offered 24 ‘Premium Economy’ seats besides eight ‘Business Class’ seats and 126 ‘Economy Class’ seats on its aircraft. The premium class experience offered greater legroom; a fine dining experience; an escort service at airports for women travellers; and priority check-in, boarding and baggage handling.

Moreover, the airline’s boarding music, which comprised music tracks from rock bands Queen and Pink Floyd, singers such as Bob Dylan, and jazz artist Louis Armstrong; diffused mood lighting; and the philosophy of prioritising “customer delight”, including surprise birthday celebrations, at the centre of its business, broke through the clutter, making Vistara a favourite among many.

For Nitin Sarin, 39, a Chandigarh-based aviation lawyer and enthusiast, who travelled either ‘Premium Economy’ or ‘Business Class’ with Vistara, what stood out about the airline were surprise upgrades to ‘Business Class’ at a nominal cost, which was bound to leave a traveller with a sense of thrill and excitement. On Monday, he booked himself on a round trip between Chandigarh and Delhi to savour the Vistara experience one last time before the merger. He has flown 84 flights with Vistara since March 2015. His first Vistara flight was on his 30th birthday with a large group of friends.

Despite its popularity in a niche traveller segment, the airline wasn’t able to clock a profit at any time during its nine years of existence. Between the financial years 2015 and 2024, the airline’s total operational revenue grew from ₹69 crore to ₹15,191 crore. However, as it expanded its network and fleet, its losses after tax and extraordinary items too grew from ₹-199 crore to ₹-1,394 crore. But its margin of losses narrowed down significantly from 288% in the first year of operations to 3.8% in the last fiscal. During this time, Vistara’s promoters, Tata Sons and Singapore Airlines, pumped in ₹10,020 crore over a decade.

“The airline created value for its stakeholders, but failed to create value for its shareholders,” one industry analyst said, on condition of anonymity.

Industry analysts say that while the airline recorded its first quarterly profit in the third quarter of financial year 2023 (the figure was not disclosed by the airline), this happened at a time there was “revenge travel” across the globe post-pandemic, resulting in record passenger demand, allowing airlines to raise airfares the world over.

A part of the airline’s huge operational cost was also a result of expensive contracts, including aircraft leases and airport agreements, those familiar with the airline’s business operations said.

But were travellers willing to pay for the frills they so loved in a market dominated by low-cost carriers? “To quote another industry veteran, an airline can’t set fares, the market does,” a former Vistara executive said.

“People are value purchasers. The best value on short domestic travel for Indians is price,” the former Vistara executive added. “So, if one had to sell a meal onboard, it had be done as an incentive to the customer, and to woo him or her to the airline.”

But this is slowly shifting with premiumisation driving growth among affluent consumers across industries, including in travel.

Over time, there was also “a convergence of cost of value and the market’s recognition of that value”, the former Vistara executive said. This unfolded as the airline strengthened its brand, created a loyal base of comfort-seeking travellers on metro-to-metro routes, and then expanded its aircraft capacity on these over a period of 10 years and grew this market further.

In June of this year, Air India announced that it would offer a ‘Premium Economy’ on all its narrow-body aircraft used for domestic and short-haul international routes, apart from the new aircraft that will join its fleet. “Vistara created a differentiated product through ‘Premium Economy’ and we wanted to continue with that at Air India,” an Air India executive said.

Even the unrivalled market leader in the Indian domestic market, IndiGo, finds a ready market that it can tap into, forcing it to make a departure from its low-cost business strategy. On Thursday (November 14, 2024), IndiGo launched its ‘IndiGo Stretch’ product that will offer two roomier seats per row, instead of three seats, with greater legroom, headrests, specially curated meals, and priority check-in and boarding on metro-to-metro routes, starting with Delhi and Mumbai and spreading to 12 routes over the next 14 months. It’s worth remembering that Jet Airways, the only full-service rival to Air India that offered ‘First’, ‘Business’ and ‘Economy’ classes, had been shuttered for five years, leaving a vacuum waiting to be filled.

“The IndiGo announcement is a clear indication that they didn’t want to give a free run to the Air India group as far as higher-paying customers for premium travel is concerned, especially after the demise of Jet Airways in 2019. The seats priced at ₹18,000 for Delhi-Mumbai flights target both ‘Premium’ and ‘Business Class’ travellers,” a former commercial head of a leading airline said.

This is also accompanied by IndiGo’s rapid expansion on international routes, where there is expected to be a greater uptake for comfort as the flight duration exceeds four-five hours. IndiGo CEO Pieter Elbers has explained in the past that the introduction of ‘IndiGo Stretch’ is timed with the induction of the bigger A321 XLR aircraft from 2025, which will connect India to southern Europe and penetrate deeper into Asia, as well as deliveries of the widebody Airbus A350 from 2027 that will allow the airline to offer long-haul international connectivity.

Even within Air India, some say Vistara as a sub-brand may be retained, but a decision will be taken in the next six months, when the airline aims to complete the revamp of its entire narrow-body fleet. “Our strategy has to evolve with what people want. We live in a dynamic environment,” an Air India executive said.

For now, it appears that even if Vistara as it has been known isn’t around, its ‘Fly the new feeling’ motto is here to stay.

Published - November 15, 2024 06:49 am IST